Key Highlights

  • The RBA expects headline Inflation to peak at 4.5% in the December 2026 quarter.
  • Underlying inflation is forecast to ease only slowly from 3.7%.
  • Both measures are expected to remain above 3% until the end of 2027.
  • Key dates include 25 November for CPI and 8 December for the cash rate decision.

One sentence in the Reserve Bank's November decision statement sets the horizon for cost-of-living pressure, and the forecasts behind it show a slow, staged descent rather than a quick return to normal.

Central bank statements are often short, and individual phrases carry a great deal of weight. In the statement accompanying its 3 November 2026 decision, the Reserve Bank of Australia's Monetary Policy Board wrote: "Inflation is now forecast to remain elevated through much of 2027". For households trying to plan a budget, that line is arguably more important than the 25 basis point increase that took the cash rate target to 4.85 per cent, because it describes how long the pressure is expected to last.

Reading the word "now"

The word "now" in the Board's sentence signals a change. Three months earlier, in the August SMP, the outlook was noticeably gentler. The forecasts published in November, finalised on 28 October, lift the near-term path for both headline and underlying inflation.

For headline CPI inflation, year-ended:

  • December 2026: 4.5 per cent, up from 3.6 per cent in August
  • June 2027: 3.7 per cent, up from 2.8 per cent
  • December 2027: 2.7 per cent, up from 2.6 per cent

For trimmed mean inflation, the RBA's preferred underlying measure:

  • December 2026: 3.6 per cent, up from 3.3 per cent
  • June 2027: 3.5 per cent, up from 3.0 per cent
  • December 2027: 2.9 per cent, up from 2.6 per cent

The SMP Overview summarises the combined picture: "Headline and trimmed mean inflation are now expected to remain above 3 per cent until end-2027". Put simply, the forecasts have shifted the expected easing of inflation out by several quarters compared with August.

A timeline in three stages

Late 2026: the high point. The Outlook chapter states that "Headline inflation is expected to peak at 4.5 per cent in the December 2026 quarter". This is the stage households are in now. The most recent quarterly figures, cited in the Overview, show "Headline inflation was 3.9 per cent over the year to the September quarter and trimmed mean inflation was 3.7 per cent." The monthly CPI indicator, a separate measure, showed headline annual inflation of 4.3 per cent in the September month.

Through 2027: elevated, easing slowly. By June 2027, headline inflation is forecast to have fallen to 3.7 per cent, but trimmed mean inflation is expected to be 3.5 per cent, barely below where it is today. This is the stretch the Board describes as "elevated through much of 2027".

2028: closer to settled. By June 2028, both headline and trimmed mean inflation are forecast at 2.5 per cent, and by December 2028 both sit at 2.4 per cent, the same as the August projections. The long-run end point, in other words, has barely changed. It is the journey to get there that has become longer.

What sits behind the longer timeline

Two broad forces appear in the RBA's material.

The first is energy. The Outlook notes "The assumed oil price in the December quarter is 35 per cent higher than assumed in August". That feeds directly into headline inflation in the near term, which is why the December 2026 headline forecast moved so far.

The second is the persistence of underlying inflation. Governor Michele Bullock, speaking at her media conference on 3 November, was explicit that the Board was not raising rates in response to oil itself: "we are not tightening monetary policy because of the direct impact of oil prices on inflation." Her concern lay with expectations: "It is critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

That concern is echoed in Deputy Governor Andrew Hauser's lecture on 5 November, which cited a Macquarie University Business survey finding that firms expecting a faster return to target planned to pass on less of their Middle East conflict-related costs. The implication is that beliefs about the inflation timeline can themselves influence how long inflation lasts.

What the timeline means for the economy

An extended period of elevated inflation comes alongside a softer economy in the RBA's forecasts. GDP growth is projected at 1.6 per cent over the year to December 2026 and to June 2027, easing to 1.3 per cent by December 2027. The Unemployment rate, which the Overview says "rose by more than expected to average 4.6 per cent in the September quarter", is forecast to reach 4.8 per cent by June 2027 and 4.9 per cent by December 2027.

For households, this combination means the period in which prices keep rising faster than usual is also expected to be one in which the labour market gradually loosens. That is a different environment from one where high inflation coincides with a very tight jobs market.

The cash rate assumption in the forecasts, drawn from market pricing as at 28 October, also stretches across this period. The Outlook describes a path that "increases by 35 basis points by mid-2027, before declining a little to stabilise at 4.8 per cent in 2028." That is a market-based assumption used for forecasting, not a commitment by the Board.

Checkpoints along the way

Because the timeline is a forecast, it will be tested against data as it arrives. Several dates on the RBA calendar fall in the coming weeks:

  • 17 November: minutes of the November Monetary Policy Board meeting
  • 25 November: the monthly CPI indicator for October
  • 8 December, 2.30 pm: the next cash rate decision

The Board's statement offers its own guide to how it will respond: "The Board will continue to do what it considers necessary to bring inflation sustainably back to target." The Governor framed the trade-off more bluntly: "Some pain now will prevent even worse pain down the track."

The bottom line

The phrase "elevated through much of 2027" summarises a forecast in which headline inflation peaks at 4.5 per cent in the December 2026 quarter, underlying inflation eases only slowly from 3.7 per cent, and both measures stay above 3 per cent until the end of 2027. The destination in 2028 is little changed from August; the route has simply become longer. How closely reality follows that path will depend on oil prices, on expectations and on the data due over the coming months.